Manhattan Office Leasing Surges in 2025,Driven by AI and Return-to-Office Trends
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Manhattan’s office real estate market experienced a notable rebound in 2025,with leasing activity reaching its highest point since before the pandemic. Fueled by a return to office work, robust tech sector hiring – especially in artificial intelligence – and strategic building conversions, the market is showing strong signs of recovery despite lingering oversupply.
Leasing Volume jumps in Fourth Quarter
Office leasing in Manhattan saw a ample increase in the fourth quarter of 2025,rising by more then 25% from the third quarter to reach 11.87 million square feet. This surge marks the strongest quarter for Manhattan office leasing as 2019.
Recovery Gains Momentum
“Manhattan’s strong performance in 2025 was not out of the blue, but was rather the continuation of a recovery that we began to feel in 2024,” stated a senior official at Colliers. The surge in demand was driven by several key factors, including a “flight to quality” as companies sought to attract and retain employees, the increasing implementation of return-to-office policies, and expansions by major tenants like Amazon, NYU, and BlackRock. The burgeoning AI industry also played a crucial role, leasing significant space throughout Manhattan.
Demand also increased across a diverse range of industries, including finance, tech, legal, education, medical nonprofits, and government.
supply and Demand Dynamics
While demand is rising, the supply of available office space remains elevated. As of late 2025, it was nearly 37% higher than at the start of the pandemic in March 2020, though lower than the peak observed in February 2024.The oversupply is gradually being absorbed as demand strengthens, resulting in the tightest availability since November 2020.
This tightening supply is beginning to translate into higher rents.Manhattan’s average asking rent rose 1.5% in the fourth quarter to $76 per square foot – the highest average since October 2020. Class A properties, representing newer construction, saw an even more significant increase, with average asking rents climbing 1.6% to $83 per square foot.
Class B office space, typically older but well-located, is also benefiting from increased demand, prompting landlords to invest in upgrades and renovations. rents for these properties grew 1.1% in the fourth quarter, reaching a record high of $68.61 per square foot.
Flight to Quality Continues
A clear trend towards higher-quality office spaces is evident, with 69% of all leased space in 2025 located in four- and five-star buildings, up from 66% in 2024, according to a separate report from CoStar. Every one of the 15 largest office leases signed during the year was in a four- or five-star property. For example, Deloitte committed to 800,000 square feet at 70 Hudson Yards, a premier manhattan office building, marking the largest lease of the year.
Positive Net Absorption and Conversions
Net absorption – a measure of occupied versus vacant space – was positive by nearly 4 million square feet in the fourth quarter, and positive by 15.56 million square feet for the entire year. This figure includes 2.14 million square feet of space removed from the market for planned conversion to non-office uses.
“Critically, the recovery and strong demand in 2025 was also fostered by millions of square feet of building conversions to nonoffice use, spurring a wave of leasing by tenants relocating out of those buildings,” explained a Colliers executive.
Challenges Remain
Despite the positive momentum, a significant amount of surplus office supply persists.”Despite the increased tenant demand and tightening availability in 2025, the Manhattan office market has only shed half of its post-pandemic excess available supply,” a Colliers representative cautioned. “The healthy demand recorded in 2025 and conversions of underutilized office assets must,thus,continue in 2026 and 2027.” .
